Queen of the South looked dead and buried when they went in at half-time two goals down with Kris Boyd and DaMarcus Beasley scoring for the Gers.
But, an incredible start to the second half saw Steve Tosh and skipper Jim Thomson brought Queens back on level terms and left Rangers rocking.
It took a powerful header by the often maligned Boyd to ensure that the cup went to Ibrox.
The Dumfries-based side looked nervous throughout the first half and Beasley and Boyd both missed good chances before Rangers went ahead.
Jean-Claude Darcheville was fouled 25 yards from goal and Barry Ferguson touched a short free-kick to Boyd, who lashed a shot into the top corner.
Goalkeeper Neil Alexander saved at the feet of Tosh, before Rangers added a second. From Beasley's corner David Weir glanced the ball on and it was cleared back to Beasley who shot home from a tight angle.
Rangers thought the cup was won at half-time, but they were in for a rude awakening when Tosh forced the ball home from close range after a good run and pull back from Sean O'Connor.
Queens then drew level when Thomson bulleted home a header from a Robert Harris corner.
Rangers looked jaded and it took a superb tackle from Carlos Cuellar to block Stephen Dobbie.
The Glasgow giants regained the lead when Boyd rose high above the Queens defence to head home Beasley's corner.
The striker nearly completed a hat-trick late on, but Jamie MacDonald made a superb save from his header.
It was a fitting finale for a Rangers team who reached the UEFA Cup final and went so close in the SPL.